U.s. Agency Had Insured Bombed Power Plant

WASHINGTON — The Palestinian power plant bombed by Israeli forces Tuesday is insured by a U.S. government agency, and U.S. officials say they expect American funds to be used to pay for the damage.

The destruction of the 140-megawatt plant, the only one in the Gaza Strip, threatens to create a humanitarian disaster because the plant supplies electricity to two-thirds of Gaza's 1.3 million residents and operates pumps that provide water supplies.

But paying a claim on the plant, which was insured for $48 million, could prove problematic for the United States, which cut off funding for all infrastructure projects in the Palestinian territories after the militant group Hamas won legislative elections in January. Administration officials said the restrictions on working with a Hamas-led government could further complicate the repair of the electric facility, which could take weeks, if not months, because of the escalating violence in Gaza.

The power plant cost about $150 million and took more than five years to build.

Plans for it began in 1999, when two private investors -- the now-defunct Enron Corp. and a Palestinian-born construction mogul, Said Khoury -- laid down the blueprint for making the Palestinian territories less reliant on buying electricity from Israel.

The project faltered when violence broke out in Gaza in 2000 and when Enron collapsed into bankruptcy, but Khoury continued to push forward. His construction company's U.S. subsidiary, Connecticut-based Morganti Group, bought out Enron's stake in the plant.

In 2002, the plant began operating, becoming the first such facility regulated by the Palestinian Energy Authority. In 2004, it reached full commercial capacity and its owners were able to purchase $48 million in "political risk" insurance from the Overseas Private Investment Corp., an arm of the U.S. government that provides American businesses with financing overseas and promotes U.S. interests in emerging markets.

Few commercial insurance companies insure such projects against political violence, but the Investment Corp. does so to encourage development in emerging markets, according to Lawrence Spinelli, a spokesman for the corporation.

The insurance that Morganti purchased covers "political violence," which includes "wars, acts of terrorism, things like that," Spinelli said.